Ethics in Accounting - Essay Example

Accounting ethics Accounting ethics are the set of s of conduct and standards that that accounting professionals must follow. . Besides satisfying the employer’s needs, accountants have to take into account public interest. Accounting standards are aimed at standardizing accounting practices across the world (Duska R, Duska S, and Ragatz 55). AICPA principles of professional conduct AICPA principles are the guidelines that guide the conduct of members in the accounting profession. 1. Accounting professionals are expected to exercise moral judgment and professionalism in the conduct of activities. 2. Professional accountants are expected to act in a manner that ensures public interest. Accountants must be committed to professionalism and earn public honor. 3. Accountants are expected to uphold high levels of integrity to earn public interest. 4. Accountants must be show objectivity and independence when discharging responsibilities. 5. Accounting professionals must continuously enhance their competencies to improve service delivery. 6. Members are expected to adhere to professional codes of conduct when determining nature and the scope of services provided. Definition and characteristics of U.S. GAAP U.S GAAP denotes internationally recognized frameworks that guide financial accountants. The principles ensure ethics in the field of accounting. The characteristics include: 1. Financial information must be relevant in that it ought to contain information about the business. 2. Information must be reliable in such a way comparative analysis can be made. The information must also be verifiable (Duska R, Duska S, and Ragatz 33). 3. Comparability ensures that differences and similarities between events can be easily made. That is, Past and currents statements can be analyzed. 4. Financial statements must also be consistent in that they are easily understandable by the users of the statements and the preparer. Define the Sarbanes-Oxley Act of 2002 (SOX) SOX is an Act enacted by the U.S congress to protect corporations and investors from falling prey to fraudulent activities. The rampant emergence of accounting scandals pushed the U.S government to develop SOX. Section 304 of the Act requires that top management certifies accuracy of financial statements. Section 401 of the Act stipulates that published financial statements must be accurate. The statements must comply with GAAP principles (Duska, Duska, and Ragatz 88). Section 404 requires auditors and management to create internal controls and ensure maintenance of such controls. Section 409 of the Act requires companies to disclose financial information to the public. Changes in the financial state of the company ought to be made public. Invaluable lessons have been learnt by learning about business ethics. I have been able to understand the need for ethical and professional conduct. The lessons have intensified my understanding on conduct that accountants must adhere to. Business scandal Enron Corporation was established in 1985 and was among the leading natural gas marketers and transmitters across the world. The company was a leading supplier of renewable energy such as wind and solar, a marketer of electricity and natural gas and a reputable for the exploration of oil and gas. The company overstated their revenues and assets while understating the debts. That contravenes the revenue recognition principle. The misrepresentation of financial statements attracted investors who were later duped. The Enron scandal resulted in the imprisonment of the CFO Ken Lay and Jeff Skilling the CEO for 24 years (Ken Silverstein). The scandal also resulted in the loss of 74 billion dollars by investors as well as bankruptcy of the company. I believe I would not engage in accounting fraud as I have strong moral believes of transparency and integrity. Taking the easy way out when faced by a difficult professional challenge is always tempting. It is important to take relevant steps to ensure ethical conduct. The first step is to get conversant with stipulated policies. This is achieved by reading and understanding the accounting principles. The second step toward maintaining professional conduct is to ensure that, all financial statements are accurate, consistent, verifiable and reliable. It is important to adhere to the professional principles to avoid getting caught up in accounting fraud. Ethical dilemma I believe my friend is attempting to manipulate the sales made for the period. This is due to the fact that the bonus they earn is calculated according to the sales revenues generated. The attempt to book future sales in the current accounting period is a falsification of accounting records. My friend is merely trying to save her home from closure by pushing for a higher bonus. The future revenues ought to be recorded as unearned revenue in the current accounting period. Unearned revenue denotes revenues whose payments are differed and payable in the future accounting periods. Unearned revenues cannot be booked as revenues in the current accounting period as that would break the revenue recognition principle. Unscrupulous companies recognize future revenues in current periods to make books of account look better than they actually are. The revenue recognition principle stipulates that revenues are recognized when payment for a service or product are made. In this case recognizing unearned revenue would be unethical since the revenues are to be collected in the future periods. In this case, the appropriate way of handling the situation is to inform your friend that, the request they made to have future revenues recorded in the current accounting period is unethical. Explain to them that you are morally and ethically obliged to make accurate financial statements. If she insists on having the sales revenues falsified, report the issue to the relevant authorities. Then go ahead and make the appropriate accounting records. Integrity is paramount for accounting personnel as fraud could result in the loss of employment or imprisonment. WORK CITED Duska, Ronald F, Brenda S. Duska, and Julie Ragatz. Accounting Ethics. Chichester, West Sussex, U.K: Wiley-Blackwell, 2011. Internet resource. Ken Silverstein contributor Forbes. Enron, Ethics and Today’s Corporate Values. 5/14/2013. http://www.forbes.com/sites/kensilverstein/2013/05/14/enron-ethics-and-todays-corporate-values/ Read More